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Greek vote could unleash seismic shocks for euro

June 17, 2012

Greece’s election on Sunday is too close to call and could push the debt-ridden country out of the European single currency, rocking the euro to its core and sowing turmoil in global financial markets.

The election, a re-run of a May 6 vote that ended in stalemate, amounts to a referendum on the punishing terms set by international lenders as the price of saving Greece from bankruptcy – withering tax hikes, job losses and pay cuts that have helped condemn Greeks to five years of record recession.

Riding a wave of anger to rise from political obscurity to contender for power, radical leftist SYRIZA leader Alexis Tsipras is threatening to tear up the terms of the 130 billion euro (104.53 billion pounds) bailout.

Tsipras says Europe cannot afford to cut Greece loose and cope with the fallout for the rest of the 17-member euro zone.

On the right, establishment heir and New Democracy leader Antonis Samaras says rejection of the EU/IMF bailout would mean a return to the drachma and even greater economic calamity.

Neither party is expected to win outright, triggering coalition negotiations with smaller parties. A new government would buy time, but little respite. Whoever comes to power may find their tenure is short-lived.

Greeks say overwhelmingly that they do not want to leave the euro but neither do they want the terms of the bailout, which many believe has amnestied a corrupt, tax-evading elite and heaped an unfair burden on the poorest sections of society.

“I’ll vote for SYRIZA,” 34-year-old theatre producer Georgia Zoumpa said on Saturday, heat rising from the pavements of the capital Athens. “I don’t believe in blackmail: if we leave the euro, other countries will suffer too.”

Central banks from Tokyo to London are readying arsenals to defend banks and national currencies against any post-election turmoil. The result will dominate a meeting of the Group of 20 world economic powers on Monday and Tuesday in Mexico.

European leaders weighed in on the eve of the vote, some of them openly urging Greeks to reject SYRIZA or risk undermining the very foundations of the single currency.

Finance officials in the euro zone have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls as a worst-case scenario.

GERMAN WARNING

A Greek exit from the single currency would heap further pressure on two far larger European economies – Spain has already received up to 100 billion euros to save debt-riddled banks and Italy could be next to seek a bailout.

Euro zone officials have hinted they might give a new Greek government some leeway on how it reaches debt targets set by the EU/IMF bailout package, but there would be no change to the targets themselves.

Euro zone paymaster Germany warned Greeks on Saturday the bailout would not be renegotiated.

“That’s why it’s so important that the Greek elections preferably lead to a result in which those that will form a future government say: ‘Yes, we will stick to the agreements’,” Chancellor Angela Merkel told a party conference of her Christian Democrats.

Anger with the establishment parties of New Democracy and the Socialist PASOK propelled SYRIZA and its youthful leader, a former Communist student protest leader, from the obscure radical fringe to shock second place on May 6.

“The memorandum of bankruptcy will belong to the past on Monday,” Tsipras, 37, told his final election rally on Thursday, though analysts suggest the SYRIZA leader might temper his stance if confronted with the reality of leaving the euro.

The neo-Nazi Golden Dawn party also won seats in the first election, underscoring the fragmentation of a stressed society wrestling with unemployment of almost 23 percent and plummeting living standards.

Five opinion polls published before a blackout two weeks ago put New Democracy narrowly ahead. Two other polls had SYRIZA leading.

“It’s obvious the country is now staring into the abyss,” leading Greek daily Kathimerini said in a front-page editorial on Sunday, calling for the creation of a New Democracy-led “unity” coalition to keep the country in the euro.

But analysts say Samaras, 61, will find it hard to govern for long with an empowered SYRIZA protesting at the gates. Tsipras, if he wins, will inherit a country on the verge of bankruptcy. He has ruled out a government of national unity and promised to nationalise banks and halt privatisations.

Some global businesses and banks are already in retreat.

Europe’s biggest retailer Carrefour said on Friday it was selling up in Greece, a day after French bank Credit Agricole moved to take direct control of its Albanian, Bulgarian and Romanian units from its Greek bank Emporiki.

Polling stations open at 7 a.m. (0400 GMT) and close at 7 p.m. (1600 GMT). Exit polls will quickly follow.

($1 = 0.7939 euros)

– Reuters

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